Draft: Strategy and Business Plan 2018/19. A consultation on our proposed three-year strategy and business plan for 2018/19

Transcription

1 Draft: Strategy and Business Plan 2018/19 A consultation on our proposed three-year strategy and business plan for 2018/19 This consultation will close on 19 February 2018

2 This consultation paper will be of interest to: Approved regulators Providers of legal services Legal representative bodies Legal advisory organisations Other third sector organisations NDPBs Consumer groups Law schools/universities Legal academics Members of the legal profession Accountancy bodies Potential new entrants to the ABS market Think tanks Government departments 2

3 Contents Foreword by the Chair... 4 Background... 6 Draft strategy Draft business plan 2018/ Partnership working Next steps Questions How to respond

4 Foreword by the Chair Dr Helen Phillips, Interim Chair It has been my privilege to build upon the legacy of Sir Michael Pitt in my tenure as interim Chair. There have been improvements in legal services regulation over the last three years but it is clear that there is more to be done. Regulators are now more risk-based and outcomes focused. Providers have more freedom in how they do business and as a result we are seeing increasing numbers of alternative business structures. This means more choice for consumers and new types of services that can improve accessibility. However, despite improvements in regulation, our 2016 market evaluation and the Competition and Markets Authority s recent market study have demonstrated that there is more to do to make the legal services market work for consumers and the public more widely. Our vision is for legal services that everyone can access and trust. In pursuit of this, we are proposing to focus on three objectives during : (i) Promoting the public interest through ensuring independent, effective and proportionate regulation (ii) Making it easier for all consumers to access the services they need and get redress (iii) Increasing innovation, growth and the diversity of services and providers. We will pursue our strategic objectives by acting as an agent for change - gathering evidence, working in partnership with other organisations, leading debate and advocating for improvement - and through our core role of overseeing the performance of regulators. Through implementing our new regulatory performance framework, we will encourage the regulators to be well-led organisations that strive to demonstrate good governance, which will help us to drive improvements in performance. Effective partnership working is essential for us to maximise our impact and increase our effectiveness in making the market work better. We have worked closely with regulators, representative bodies, consumer groups and other organisations to develop our draft strategy. We share significant common ground and we will all have a greater impact if we work together to prioritise and align our actions. 4

5 Through this consultation process we want to hear your views on our draft strategy. What have we got right? What could be improved? And where do you see scope for collaboration? We also want to hear what you think about our business plan for 2018/19, which sets out the specific work that we propose for the first year of our new three-year strategy period. 5

6 Background 1. The Legal Services Board (LSB) is the independent body responsible for overseeing the regulation of lawyers in England and Wales. We are independent of both government and the profession. We are funded by the legal profession. We hold to account the eight regulators for the different branches of the legal profession and the Office for Legal Complaints. Further detail on our role, powers and approach are included in our draft strategy and business plan, which are annexes to this consultation paper. 2. We are currently in the last year of our existing strategic cycle. We are therefore consulting on our next three-year strategy, as well as a draft business plan for 2018/19, which details our proposed work programme for the first year of our new strategic period. Progress under our existing strategy 3. Our strategy includes the following strategic objectives: (i) Breaking down the regulatory barriers to competition, growth and innovation (ii) Enabling the need for legal services to be met more effectively (iii) Ensuring that the regulators and the Legal Ombudsman are operating effectively and that there is a shared understanding of the legal services market. 4. Over the last three years, we have made considerable progress against these strategic objectives. For example: The performance of regulators has improved. When we assessed regulators performance in 2012/13, we found that their performance was good or satisfactory in only 1 of the 35 standards that we assessed. We have since overseen significant work by the regulators to address these deficiencies and as a result, in 2016 this had increased to 20 out of the 40 standards that we assessed. We have highlighted the extent and scale of unmet legal need. It is now well established and accepted within the sector and is informing work programmes at regulators and representative bodies. Our research has advanced understanding of both the extent of unmet legal need as well as some of the reasons and consequences. Regulators have set out extensive plans to take action to improve transparency of consumer information. This follows on from the Competition and Markets Authority s (CMA) 2016 market study of the legal services sector 1. We worked closely with the CMA during the market study to leverage our evidence and research to inform and influence the study. 1 The CMA s market study can be viewed online here: 6

7 We have since worked with regulators to ensure that progress is being made on the actions proposed by the CMA. We have continued to oversee the removal of regulatory barriers to competition. This has included ensuring that the Solicitors Regulation Authority (SRA) improved the efficiency of its licensing scheme for Alternative Business Structures (ABS), as well as designating the Bar Standards Board (BSB) as a licensing authority. Between March 2014 and March 2017, we saw the number of ABS increase significantly from 306 to 892. We commissioned an economic analysis of our statutory decisions in 2016 which concluded that the impact of our decisions was broadly procompetitive. Similarly, the CMA s market study concluded that there were no significant regulatory barriers to effective competition and our investment research in 2017 also found that regulation was not seen as a significant barrier to investment. 5. We have achieved these outcomes as a result of a variety of activity, including: Deciding upon 30 rule change and 21 practising fee applications Overseeing performance of the regulators under our regulatory standards process, including publishing assessments in 2016 and overseeing progress against agreed action plans to address areas for improvement. We have recently developed a new, risk-based approach to assessing regulators performance from 2018/19 onwards. Publishing a number of pieces of significant research, including our second individual legal needs survey and second small business legal needs survey, as well as two surveys on the price of legal services. Our research significantly aided the CMA in forming its conclusions for its market study of legal services. 2 Publishing our second Market Evaluation, which assessed progress made against the market outcomes associated with the Legal Services Act Full details of our work during this period are set out in our annual reports for each year, which are available here. 7. The progress over the last three years is significant and we believe that it has secured important improvements for consumers, providers and the public more broadly. However, in relation to all three of our strategic objectives, there remains significant scope for outcomes to improve. For example, despite improvements in regulatory performance, a number of regulators have yet to demonstrate a satisfactory level of performance in some areas. Similarly, the level of unmet legal need remains high and the CMA s market study concluded that the legal services market is not working as well as it could for consumers. Finally, in spite of the removal of many regulatory barriers to competition, our research has found that levels of innovation and investment in legal services could be better and our prices research has demonstrated significant dispersion in prices for comparable 2 All of our research is published online here: 7

8 services (which indicates consumers are not benefiting from competition as much as they could be). Stakeholder engagement 8. We have undertaken significant stakeholder engagement to develop our strategy. We have met and/or informally consulted with individuals and organisations including legal regulators, representative bodies, consumer groups, providers, academics and regulators in other sectors to discuss trends in the sector, progress with our previous strategy and views on where we should focus our attention over the next three years. Operating environment trends and drivers of change 9. From our research and stakeholder engagement, we have identified a wide range of trends and drivers for change that we expect to be at play in the sector over the next three years. Below we have set out the factors that we believe will be most significant to our work, grouped under four themes. Technology 10. The impact of technology on legal services is the subject of significant press coverage and debate. Whilst the sector has not yet experienced significant disruptive innovation, we expect the impact of technology to continue to grow and for it to drive ongoing changes to the way that consumers engage with legal services. Key trends are likely to include: An increased role for artificial intelligence in addressing legal problems Technology driving further commoditisation of legal services, which is already emerging in some areas such as will writing and divorce Big data potentially allowing providers to develop more personalised services Modernisation of the court system, with a focus on online dispute resolution and some use of online courts. 11. In general, as the role of technology in service delivery increases and delivers many benefits, new regulatory risks may also emerge. The challenge for regulators will be to understand the changing environment, ensure regulation keeps pace and effectively manages these risks without stifling innovation. We think the concept of technology neutral regulation will be worth exploring. Government and economy 12. The next three years will see the UK leave the European Union. As a result, we do not envisage legislative reform of the regulatory framework for legal services being a realistic prospect during the next three years. We still believe that the system is in need of reform and that this should not be forgotten during this period. However, the more immediate challenge for the LSB and the sector will be to make the most of the current framework. 8

9 13. With EU exit approaching, the government has a strong focus on a global Britain, which will include seeking to maintain the international competitiveness of the legal sector. Representative bodies are likely to be engaged in similar work to support this. 14. Economically, there will be ongoing pressure on government spending, which will continue particularly to effect legal services providers who undertake publicly funded work and in the not-for-profit sector. Consumers and society 15. Our individual legal needs surveys in 2012 and 2016 and our small business legal needs surveys in 2013 and 2015 have highlighted the high levels of unmet legal need in the market. We have also undertaken targeted research to highlight the challenges that certain vulnerable consumers (such as those with mental health problems) can experience when trying to access legal services. We expect unmet legal need to be an ongoing theme and challenge for the sector in the coming years. 16. Consumers engagement with, and experience of, legal services differs considerably according to their profile and circumstances. Whilst some consumers are inherently vulnerable, all consumers can on occasions find themselves in in a position of vulnerability due to circumstances surrounding their legal problem. Keeping pace with this dynamic concept of consumer vulnerability will be challenging for providers and regulators as services evolve. In particular, there is a risk that technology-driven innovations can result in improvements for some consumers whilst making matters more difficult for others. For example, whilst technology can empower many consumers and improve accessibility of services, it can result in those who are not able to use the internet finding it even harder to access services (digital exclusion). 17. More broadly, the population is growing and ageing. We can expect this to carry over into more, but on average older, people needing legal services. Providers 18. The provider landscape has undergone significant change in recent years and we expect this to continue over the next three years. 19. Providers now have a wider choice of regulator and greater freedom in how they can be structured including ABS. 20. Our research into unregulated providers in 2016 found that they have a modest overall market share but there are segments of the market in which they have a greater foothold. The CMA s market study was encouraging of competition from unregulated providers and the SRA s proposed changes in this area, if approved, may contribute to increasing solicitor involvement in the unregulated sector. 21. The remedies to lack of competition in the legal services market proposed by the CMA in its 2016 market study are intended to have a significant impact on 9

10 transparency in the market and the way in which providers engage with consumers on the price and service that they offer. Regulators have recently published consultations on their approach to implementing changes to respond to the CMA s recommendations and this is likely to lead to changes in regulatory requirements on providers over the coming years. 22. As set out above, the not-for-profit sector and providers reliant on legal aid are likely to experience ongoing financial pressure. 23. Improving the diversity of regulated legal services providers will remain an ongoing challenge. Whilst the evidence is showing progress at entry level in many respects, progress in improving diversity at more senior levels of the professions is slow. 24. Our draft strategy (Annex A) summarises the above high-level trends on pages 6 and 7. Demands on regulators and the profession 25. It is clear that planning for and responding to issues that arise from EU exit and responding to the CMA s recommendations will place considerable call on regulators resources over the next three years. 26. We are also mindful that, on top of this, individual regulators will from time to time need to respond to government initiatives, such as the recent Brady review of claims management regulation and HM Treasury s Insurance Task Force. Other government reforms in areas such as Anti-Money Laundering and the General Data Protection Regulation will also require providers and regulators time and resources. Q1 Are there are any additional significant market trends or drivers for change that you are aware of that we should also take into account? Draft strategy Overview 27. Our research has demonstrated that despite considerable improvements in the variety of legal services and business models available, and substantial growth in the sector since the Legal Services Act 2007, the impact on market outcomes has been slow. For example, the conclusions of our wide-ranging 2016 market evaluation included the following: Competition there have been positive developments but improved outcomes for consumers are emerging slowly. Access to legal services a similar proportion of consumers are taking action in response to a legal problem, but more consumers are handling their matters alone rather than seeking advice. 10

11 Quality of legal services improvements in the quality of legal services are evident in most areas. 28. The market evaluation was based on data from 2015 (the start of our strategic period). We will complete another similar evaluation in 2019 which will give a better indication of changes that might have resulted from our work during our current strategy period. However, the evidence that we have obtained since the last market evaluation does not suggest that there has been significant changes in outcomes since As a result, we propose to retain a strategic focus on regulators performance, consumers access to services and redress and encouraging an innovative and diverse supply of legal services. To reflect progress made and lessons leant over the last three years, we have refocussed our strategic objectives within these areas to maximise our impact. 30. Our draft strategy sets out the three new strategic objectives that we propose pursuing during These are: 1) Promoting the public interest through ensuring independent, effective and proportionate regulation 2) Making it easier for all consumers to access the services they need and get redress 3) Increasing innovation, growth and the diversity of services and providers. 31. For each objective within our strategy, we have highlighted the current evidence that underlies the need for the objective, what we will do over the next three years to pursue the objective and indicators of success that we will use to measure our progress. This is set out on pages 9 to 17 of the strategy. Although we recognise that factors outside our control will have a significant influence on some of these indicators, we think it is important to set out our ambitions and how we will gauge our and the sector s progress. 32. In practice, there is significant crossover between our three proposed objectives. For example, whilst our second objective directly concerns consumers access to legal services, the first objective is key to ensuring that standards are maintained (which is in the interests of consumers) and the third objective regarding a healthy supply side of the market should also contribute to improved access for consumers. 33. In relation to what we will do on each objective, we have grouped activities under our two overarching functions: Overseeing performance: this relates to our role in overseeing the work of the regulators. In line with our regulatory approach, it will involve identifying key risks, setting out our expectations, seeking assurance, tackling concerns and potentially taking formal action. Our aim is to ensure that all regulators meet our required level of performance and that they 11

12 learn and adapt their approach to future challenges. Most of this work will be channelled through our new regulatory performance framework, although it will also include exercising our statutory functions to consider rule change applications and practising fees and our work overseeing the Solicitors Disciplinary Tribunal and Office for Legal Complaints. Acting as an agent for change: beyond our core statutory powers and functions, we will also seek to promote the regulatory objectives through advocating for change and improvement in the market. This will involve gathering and publicising evidence on areas of concern, working in partnership with other organisations to understand, publicise and respond to identified issues and leading debate on how to respond to the challenges facing the sector. Our role as oversight regulator means that we are uniquely well-placed to promote the regulatory objectives through sharing our experience and evidence of how things could change for the better. Q2 Do you have any comments on our proposed strategic objectives? Equality objectives 34. As part of the development of this strategy, we have reviewed our equality objectives to ensure that they remain appropriate. Following this review, we have decided to revise our equality objectives to achieve greater alignment with the outcomes that we have set out for regulators in our 2017 guidance for regulators on encouraging a diverse workforce. We are proposing the objectives set out on page 18 of the strategy. Q3 Do you have any comments on our proposed equality objectives? Market intelligence 35. The LSB is an evidence-based regulator and on page 19 the strategy explains the approach that we will take to market intelligence to ensure that we have a robust evidence base to inform our work and to support our work as an agent for change. We will continue to commission external research as a key component of our market intelligence. However, our own primary research continues to be just one of many sources of evidence and market information that we will rely upon. Q4 Do you have any comments on our proposed approach to market intelligence within our strategy? Q5 Do you have any other comments about the presentation or content of our strategy? Draft business plan 2018/ At Annex B we have included a draft Business Plan for 2018/19 which describes the work we intend to complete in the first year of our three-year strategic 12

13 planning period. Further detail and background on each workstream is included below. Objective 1: Promoting the public interest through ensuring independent, effective and proportionate regulation Regulatory performance 37. Over the last 18 months we have been developing a new, risk-based approach and framework for assessing the performance of regulators. We published a consultation on this in June 2017 and will issue our response to the consultation shortly. 38. Our new regulatory performance assessment process will formally begin from April 2018 and during 2018/19 we will undertake transitional assessments of the regulators performance in order to bring our new approach into operation. We will phase these transitional assessments across the regulators and anticipate that it will take months to complete them all. Internal Governance Rules review outcomes 39. Our Internal Governance Rules (IGRs) set out what we expect of approved regulators to ensure that (amongst other things) their regulatory functions have the resources reasonably required, that their regulatory functions are not prejudiced by their representative functions and that so far as reasonably practicable, regulatory decision making is independent from representative decision making. 40. During 2017/18 we have been reviewing our IGRs and in November 2017 we published a consultation paper outlining options for amending the IGRs to enhance regulatory independence. The consultation paper seeks views on a range of options, from retaining the current IGRs through to possible amendments that might involve differing amounts of change or prescription, and also seeks views on possibly changing the way that we assure compliance with the IGRs. The consultation closes in February and following this we will decide which option we will take forward, bearing in mind that some options may require further consultation on the detailed changes proposed to the IGRs. 41. During 2018/19 we will implement the outcome of our work in this area. Technology and regulation 42. We expect technology to be a significant driver for change over the coming years. What sort of change is as yet unknown but we are already seeing ways in which artificial intelligence and technology more broadly can contribute to the delivery of legal services. These changes could bring significant benefits to consumers. However, there are also ethical considerations and evolving challenges and risks for regulators to deal with. 13

14 43. We will lead a project which seeks to improve our understanding of the regulatory implications associated with new technology and how regulators can respond to these without stifling innovation or reducing consumer protection. This will involve convening regulators, providers and consumers to understand more about the latest developments and what is coming over the horizon, drawing insights from other sectors and publicising our findings. 44. We will share our findings to help regulators be prepared for future challenges. It will also help to inform our own future approach to oversight of the regulators. Enforcement end to end review 45. During 2017/18 we have started an end-to-end review of the enforcement processes of the SRA and BSB. We expect the majority of the work on this project to be completed by the end of this financial year. However, during the first quarter of 2018/19 we will publish a report on this project and undertake associated work to publicise findings and ensure that lessons are learnt. Objective 2: Making it easier for all consumers to access the services they need and get redress CMA action plans 46. The CMA s 2016 market study included a number of recommendations for the regulators to improve transparency for consumers about price, terms of service, quality and regulation. 47. The regulators have produced action plans for how they intend to address the CMA s recommendations and in October 2017 we published an assessment of these action plans. Most of the regulators are now consulting on regulatory changes that will be required to implement their action plans. We will continue to engage with the regulators, including through our participation in the crossregulator group working on these issues - the Remedies Programme Implementation Group - and to monitor their progress. 48. We will report publicly on the regulators collective progress in autumn We see this work as an important step in making legal services more accessible for consumers. Individual legal needs survey 49. In 2012 and 2016 we undertook largescale surveys of consumers to understand how they responded to legal problems. This research has helped to identify and advance understanding of the scale of unmet legal need and some of the factors which contribute to it. 50. We aim to repeat this survey every three years so that we have up-to-date data to inform our policy making and can assess changes. Therefore during 2018/19 we will undertake our third individual legal needs survey. 14

15 51. In addition to informing our own policy, this survey has broader value for stakeholders and the market. For example, our 2016 survey was heavily referenced by the CMA in its market study. For this reason, we plan to lead significant follow up work to ensure that key findings are shared with and understood by other key players. Small business legal needs 52. In early 2018 we will publish the report on our third small business legal needs survey. This report will show what changes there have been since our last survey in We will undertake follow up work to ensure that findings are understood and lessons learnt, which will largely fall within the first quarter of 2018/ We also expect to undertake some targeted policy work on themes uncovered by the research, to deepen our understanding or to assess how to respond to a particular issue. The exact nature of this work will depend upon the themes that the survey reveals. Consumer segmentation 55. During 2016/17 and 2017/18 the Legal Services Consumer Panel has been pursuing work aimed at encouraging the regulators to adopt consumer segmentation frameworks, to help them to measure and understand risks for different groups of consumers and to tailor their approach to reflect this. 56. Our individual legal needs surveys, research into vulnerable consumer groups (such as our research in 2017 on how people with mental health problems and dementia experience legal services) and research into issues such as how consumers generally choose and use legal services providers, could provide a starting point for regulators when seeking to develop a segmentation model. During 2018/19 we will work with the Consumer Panel and regulators to establish how we can assist with encouraging the development and use of consumer segmentation by regulators. Objective 3: Increasing innovation, growth and the diversity of services and providers. Planning for EU exit 57. The legal sector, including the legal regulators, will need to respond to changes resulting from the UK s impending exit from the EU. We will facilitate work to identify any risks to the regulatory objectives related to EU exit, we will take action as necessary to manage any impact on our regulatory oversight functions and we will seek assurance that regulators have adequate plans for managing the impact in their areas of responsibility. 58. Our work will make sure that the LSB and regulators play our parts in preparing for EU exit, to protect consumers and the public and maintain the international standing and competitiveness of the legal sector. 15

16 Diversity guidance 59. In February 2017 we published revised guidance for regulators on encouraging a diverse workforce. The revised guidance was less prescriptive than previously to allow the regulators to deliver suitable, targeted approaches in their regulated community. 60. Our first formal review against the guidance will commence in August The scope of the first formal review will be informed by the informal review of regulator progress, which we undertook in August Innovation survey 61. In 2015 we published the first legal sector innovation survey, jointly funded with the SRA, which assessed the level of innovation amongst legal services providers. We will commission the fieldwork on a second survey during Q4 of 2017/ During 2018/19 we will undertake an analysis of this data in-house and publish a report. We will undertake follow up work to ensure that the findings are publicised and lessons are learnt. Other ongoing work 63. In addition to the above work under our objectives, the business plan sets out our ongoing statutory work to fulfil our statutory duties. We expect 2018/19 to be a particularly busy year in terms of statutory decisions; this will include the outcomes from the SRA s Handbook review, as well as changes in preparation for EU exit and changes that flow from CMA action plans, alongside a number of other anticipated applications. 64. Page 5 of the business plan also notes additional work that we will pursue to improve market intelligence. Our costs 65. In line with previous commitments we are consistently seeking to drive down our costs, cognisant that these are paid for by a levy on the approved regulators and ultimately therefore by providers and consumers of legal services. Although a high proportion of these are relatively fixed in the short term we continue to strive for efficiency savings whilst at the same time making sure we are doing the right things as the sector s oversight regulator. We will ensure, however, that we do not reduce so severely that we do not have enough resource to fulfil our core responsibilities and duties. We are proposing a further reduction in our baseline budget to 3.798m We will continue to seek opportunities for joint funding of market intelligence work both with approved regulators and/or other organisations We do not envisage any requirement for a capital budget for 2018/19. Q6 Do you have any comments on our proposed business plan and work for 2018/19? Are there any workstreams that you disagree with? Is there any work that you think we should pursue that is not currently included? 16

17 Partnership working 66. In order to achieve our vision, we recognise the importance of effective partnership working with other players in the sector. This is particularly important in relation to our work as an agent for change, where working with others will help us to communicate evidence and key messages and stimulate change. 67. We have worked closely with key stakeholders in the sector to develop this strategy and it is clear that there is significant common ground. We hope that stakeholders will support us in delivering this strategy, building on the existing strengths of the sector and helping to make the market work better for consumers and the wider public. Through this consultation process, we invite stakeholders to identify elements of our strategy or business plan on which they see scope for further more detailed dialogue and/or collaboration with us. Q7 Please identify any elements of our strategy or business plan that you think present an opportunity for more detailed dialogue and/or joint working between your organisation and the LSB. Next steps 68. This consultation closes on 19 February During the consultation, we will host a stakeholder engagement session to provide an opportunity for stakeholders to discuss our strategy and business plan and ask any further questions. 69. Once the consultation has closed, we will consider all feedback received and make any resulting amendments to our strategy and business plan. We will publish our response to the consultation, alongside our final strategy and business plan, by the end of March Questions Q1 Are there are any additional significant market trends or drivers for change that you are aware of that we should also take into account? Q2 Do you have any comments on our proposed strategic objectives? Q3 Do you have any comments on our proposed equality objectives? Q4 Do you have any comments on our proposed approach to market intelligence within our strategy? Q5 Do you have any other comments about the presentation or content of our strategy? 17

18 Q6 Do you have any comments on our proposed business plan and work for 2018/19? Are there any workstreams that you disagree with? Is there any work that you think we should pursue that is not currently included? Q7 Please identify any elements of our strategy or business plan that you think present an opportunity for more detailed dialogue and/or joint working between your organisation and the LSB. How to respond 70. We welcome views and comments on all aspects for our draft Business Plan by 6pm on Monday 19 February We would prefer to receive responses electronically (in MS Word format), but hard copy responses by post are also welcome. 72. Responses should be sent to: Post: Ramandeep Bhatti Legal Services Board One Kemble Street London WC2B 4AN 73. We intend to publish all responses to this consultation on our website unless a respondent explicitly requests that a specific part of the response, or its entirety, should be kept confidential. We will record the identity of the respondent and the fact that they have submitted a confidential response in our summary of responses. 74. If you want to discuss any aspect of this consultation, or need advice on how to respond, please contact the LSB by telephone ( ) or by one of the methods described above. 75. We will consider all responses to this consultation and will publish the final Business Plan for 2017/18 in March Complaints 76. Complaints or queries about the LSB s consultation process should be directed to Chris Nichols, the Consultation Co-ordinator, at the following address: Chris Nichols Legal Services Board One Kemble Street London WC2D 4AN 18

19 Or by to: 19